ii view: Rio Tinto’s final dividend is better than feared

Full-year results to 31 December

• Revenue down 1% to $53.7 billion
• Adjusted profit down 2% to $23.3 billion
• Final dividend of $2.25
• Total dividend for the year down 8% to $4.02 per share
• Net debt up $1.3 billion to $5.5 billion

Guidance:

• Continues to expect full-year 2025 Australian Pilbara iron ore shipments of 323-338 million tonnes (mt)

Chief Executive Jakob Stausholm said:

"We are excited as we head into 2025, with all the building blocks for an incredibly successful, diversified and growing business in place including the expected closing of the Arcadium acquisition in March. We will remain disciplined in the short, medium and long term, while paying attractive returns to shareholders."

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

ii round-up:

Mining giant Rio Tinto Registered Shares (LSE:RIO) detailed a decline in annual profit, although the dividend cut was not as bad as expected. 

An average 11% retreat in iron ore prices failed to counter price gains in other commodities and a more than 1% improvement in overall production, leaving adjusted profit (EBITDA) down 2% in 2024 at $23.3 billion. A final dividend of $2.25 per share exceeded City forecasts of $2.06 per share, although the total payment for the year is down 8% at $4.02. That’s the ninth consecutive year that Rio has paid out 60% of earnings, the top of its dividend policy range. 

Shares in the FTSE 100 company gave up initial gains in post results UK trading, but remain in positive territory having come into these latest results down around 6% over the last year. That’s similar to fellow iron ore miner BHP Group Ltd (LSE:BHP) and in contrast to a 12% gain for the FTSE 100 index over that time. 

Regularly sold to China, Australian iron ore accounts for Rio’s biggest chuck of profit at around 70%, with the balance largely split between copper and aluminium.  

Average realised prices for copper and aluminium improved 8% from 2023. Rio maintained its prior guidance for full-year 2025 Australian Pilbara iron ore shipments of between 323 and 338 mt, although with a series of recent cyclones potentially impacting the outcome. 

Group net debt climbed $1.3 billion year-over-year to $5.1 billion. In October, Rio agreed the $6.7 billion takeover of US listed lithium miner Arcadium to boost exposure to energy transition products. Lithium is used to make rechargeable batteries used in products from mobile phones to electric vehicles.

Operational developments over the year included the commissioning of ventilation shafts at its Oyu Tolgoi copper-gold mine in Mongolia, and a $2.5 billion approval of plans to expand its existing lithium Rincon project in Argentina. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results. A first-quarter production update is scheduled for 16 April. 

ii view:

Anglo-Australian miner Rio Tinto employs over 55,000 across more 30 countries, with strong presences in Australia and North America. Headquartered in London, rivals include Anglo American (LSE:AAL), Glencore (LSE:GLEN), Antofagasta (LSE:ANTO) and BHP.

For investors, the weather can impact production, with recent Australian cyclones potentially reducing current 2025 iron ore shipments. There'll also be a resolution at Rio's next AGM in April requesting a review of its dual-listed structure - a potential move which Rio asks shareholders to reject given management’s positive view of the benefits of the current listing. Potential US trade tariffs could hinder Canadian aluminium and subsequent sales to the US, while concerns about the economic health of the miner’s biggest customer China, at around 60% of overall sales, persist.

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• 10 shares to give you a £10,000 annual income in 2025
• The Analyst: the benefits of owning commodities in your portfolio

More favourably, a focus on increasing production of energy transition commodities such as copper and lithium used in solar panels, wind turbines and energy storage systems, is ongoing. Rio considered its acquisition of Arcadium as counter-cyclical, with the price of lithium down more than 80% since its peak at the time of the bid approach. Efforts to improve its environmental, social and governance (ESG) policy continue, while a net gearing ratio of 9% continues to suggest a robust balance sheet.  

For now, and despite ongoing risks, a consensus analyst fair value estimate above £58 per share plus a forecast dividend yield of around 6% offer grounds for continued optimism over the long term. 

Positive

• Selection of different commodities mined
• Attractive dividend payment (not guaranteed)

Negative

• Uncertain global economic outlook
• The weather can impact performance

The average rating of stock market analysts:

Buy